Wizards Value Soars with Clippers Sale

From left: John Wall, Bradley Beal and Marcin Gortat (Courtesy of XNSPORTS)

The pending sale of the Los Angeles Clippers to former Microsoft CEO Steve Ballmer has set off a firestorm of speculation in the financial world where many believe the $2 billion price paid for the franchise has greatly enhanced the value of other teams, including the Washington Wizards.

However, while analysts at Forbes and Bloomberg have already placed new and larger values on other NBA franchises, local economists have cautioned that Washington isn’t Los Angeles where the glitz of Hollywood factors among the many reasons the team commanded such a high price.

“The price tags you are hearing are what [Forbes and Bloomberg] believe are the underlying values,” said William E. Spriggs, a professor of Economics at Howard University in Northwest.

Spriggs said the Clippers play in the country’s second largest market, they have a pending cable television deal that will net hundreds of millions of dollars each year for the team, and the franchise has several superstars whose merchandise sales are off the charts.

“The Wizards don’t have a superstar that receives national attention. They don’t have a LeBron James whose massive jersey sales and that of other merchandise helps the value of the team,” Spriggs said. “Maybe one day kids will run out and say they want a John Wall jersey, but that hasn’t happened yet.”

Glenn Eyrich, of the Calibre CPA Group, a Bethesda, Maryland-based accounting firm, said it’s possible the Clippers sale will prove to be just an aberration and the now-inflated values of other teams will level off or return to the levels prior to Ballmer’s purchase which officials said will become final in July.

“It’s such an extraordinary sale and obviously it impacts the overall value of other teams,” said Eyrich, who handles the firm’s professional sports associations, which includes the NBA and NFL player’s unions.

“There are not enough people who could put that much money together to purchase a team,” Eyrich said. “This is so off the charts, even the other bids for the Clippers, which were $1.4 billion and $1.6 billion, weren’t close.”

Still, many said Ballmer had good reason to pay so much, noting the Clippers current television deal nets the team $20 million annually and that could increase ten-fold with the next contract team officials are now negotiating.

Also, Los Angeles’ star-laden roster that includes Chris Paul and Blake Griffin and revenue from tickets, luxury suites and arena advertising, helped to push the value of the franchise to where no other team had previously gone.

“These buyers are irrational and exuberant but not altogether foolish,” John Vrooman, professor of sports economics at Vanderbilt University, told the Los Angeles Times. “There’s a method to Ballmer’s madness. About $1.6 billion of the price is sustainable investment and the extra $400 million may be what a billionaire owner with a Harvard degree in economics simply wants to pay for his NBA buzz.”

Spriggs said it would behoove the Wizards to try and reconnect with the team’s Baltimore roots. The former Baltimore Bullets moved to Washington in 1973 and they have done very little to capture the entire local market, which would help to greatly increase the team’s value, the professor said.